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Property Market Forecast 2023 — House Prices Predictions from Expert

Property Market Forecast 2023 — House Prices Predictions from Expert

Key takeaways

Australia’s housing market continues to defy expectations!

Despite 13 interest rate increases from the Reserve Bank of Australia, which have seen official rates rise by 4.25 per cent over the 18 months, property prices have not only stopped falling, but they have now been on the rise since early 2023.

It is clear that our property markets bottomed out in early 2023 and we have moved into the next phase – the recovery phase of the property cycle.

Lower listing volumes (fewer properties for sale) are helping protect the market from further downward pressure.

Inflation has now peaked and it’s likely so have interest rates, and in due course consumer confidence will return and the markets will continue their upward trajectory.

But don’t expect a rapid recovery, and as I explain below our markets will be fragmented.

And there is no end in sight for our rental crisis and rents will continue skyrocketing this year.

  • What’s the outlook for the Australian property markets for 2024? 
  • Have our property markets really bottomed out or will the “fixed interest rate cliff” and affordability issues cause a round of distressed sales and prices to fall? 
  • Have interest rates really peaked now or will the RBA raise rates again in 2024 and when will they start coming down?

These are common questions people are asking now that the housing markets have had ten months of rising values.

Well…it is now clear that our housing market has defied the many doomsday forecasts made a year ago and has moved through the bottom of the cyclical downturn early in 2023 experiencing a V-shaped recovery making the 2022 downturn one of the sharpest but shortest ones in history.

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The price upturn is now firmly entrenched with home prices hitting fresh record highs in many markets during the final months of 2023.

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Meanwhile, auction clearance rates are delivering consistent results showing the depth of our major capital city housing markets and the year is finishing off with increasing buyer sentiment – in fact some FOMO (fear of missing out) is creeping in as house prices reach new peaks.

Of course, each state is at its own stage of the property cycle and within each capital city there are multiple markets.

While some regional areas outperformed the capital cities in 2022, capital city property markets have led the price upturn in 2023 and regional areas had slower growth.

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And after underperforming throughout the pandemic period, unit prices recorded stronger growth for much of 2023.

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The latest housing market stats

Dwelling values have remained robust throughout the year, with November marking a 7% annual increase with some major cities rising stronger than others.

Here are the latest stats provided by CoreLogic for property price changes around Australia:

Corelogic Stats

Source: CoreLogic 1st December 2023

In fact, all the research houses reported higher dwelling prices in November 2023,

  • CoreLogic’s national Home Value Index rose 0.6% in November, the smallest monthly gain since the growth cycle commenced in February. Despite the slowdown, the national HVI reached a new record high in November.
  • PropTrack reported that Australian home prices continued their ascent in November jumping 0.22% month-on-month to set another fresh record.
  • Dr Andrew Wilson’s My Housing Market reported that national house prices have continued to record strong results over November although growth rates in most capitals have eased marginally compared to the previous month’s robust results. According to Dr Wilson, the national capital city median house price again increased sharply by 0.7% over the November quarter compared to the October quarter – rising to $1,085,389.

We also keep track of “Asking Prices” as these are a good leading indicator for the property market because they reflect the sentiment of sellers and their expectations for the future value of their homes.

SQM Research provides a weekly Housing Asking Prices Index:

Next update: 19 Dec 2023

The fundamentals of what drives Australian property prices

Property prices are driven by a combination of factors, and as we move through property cycles, they all come together to influence whether property values rise or fall.

In the medium term, property values will be linked to a range of factors that tend to boil down to two basic economic concepts: consumer confidence and supply and demand.

Understanding how these concepts work together to affect real estate is crucial to one’s understanding of what’s ahead for our housing markets.

On the other hand, if you look at what’s ahead for housing markets over the next decade or two, and take a telescopic view, rather than a microscopic view, the two big factors driving our housing markets will be demographics (how many of us there are, have we want to live and where we want to live) and the wealth of the nation.

But first, let’s dig a bit deeper into the key underlying factors that will be influencing our property markets in the medium term.

Interest Rate2

1. Interest rates/affordability

While many people believe interest rates are a key driver of property values, and that’s why there were so many pessimistic property forecasts as interest rates rose through 2022-23, our housing markets showed considerable resilience and kept rising in value despite the 13 interest rate rises the RBA threw at us.

Of course, falling interest rates and the subsequent increased affordability are strong drivers of property price growth, but the reverse isn’t true.

Clearly, house prices are driven by many other factors, not just interest rates.

2. Supply and demand

Housing supply clearly has a significant influence over house prices in the short term: an undersupply puts pressure on prices to rise while an oversupply does the opposite.

Despite very strong population growth through 2023, we’re just not building enough new dwellings, and this has put pressure on housing supply reflected in low rental vacancy rates and higher house prices.

At the same time, the strong absorption of new listings for sale has kept total listings in the market suppressed, intensifying competition between buyers.

These factors have created a sharp shortage of housing, outweighing the negative impact of rates on prices.

Population Growth Vs Building Completions

And there is no end in sight as building approvals (which are a good indication of future supply) are running at very low levels.

And just because a new apartment complex has been approved, it doesn’t mean it will get built.

At the moment very few new complexes are coming out of the ground because it’s not financially viable to build them at today’s market prices.

Of course, this means future new developments will have to sell at prices considerably higher than today’s market value and this will, in turn, pull up the value of established apartments.

Building Approvals Vs Population Growth

3. Consumer confidence

Consumer confidence is a critical factor affecting the direction of property prices.

We won’t make big financial decisions like moving home or buying an investment property unless we feel confident about our economic future and our financial stability.

2023 was a year where consumer confidence was at historic lows because of all the economic and socio-political issues that confronted us.

Consumer Sentiment

I believe that during 2024 consumer confidence will rise as we realise interest rates have peaked and are going to eventually fall, and as inflation slowly comes under control.

At the same time, the “wealth effect” a very improving economy and rising property values will lead to further consumer confidence and bring home buyers and sellers back into the market.

4. Economic climate

Another key factor that affects the value of the property market is the overall health of the economy.

This is generally measured by economic indicators such as the gross domestic product (GDP), employment data, manufacturing activity, the prices of goods, etc.

Broadly speaking, the economy is strong and the RBA is trying to slow it down to bring inflation under control, but currently, everybody who wants a job can get a job and this will underpin our housing markets even if the economy falters a little moving forward.

5. Population growth

Australia has experienced a record-breaking rate of net overseas migration, estimated to have reached around 500,000 people in the 12 months to September 2023.

While population growth would ordinarily be a key driver supporting our property markets, the influx has pushed our supply/demand balance off-kilter and is key to the increase in housing prices and the shortage of rental properties.

6. Availability of credit

When the credit (the ability to borrow from the banks) is readily accessible, with lower interest rates and less stringent lending criteria, it tends to stimulate the housing market since more people find themselves able to borrow money to buy homes, leading to increased demand for housing.

On the flip side, when credit is tightened through higher interest rates or stricter lending criteria (as happened when APRA made the banks tighten the purse strings in 2016-7), the effect can be a cooling of the housing market.

Such measures are usually a deliberate policy response to an overheated market, aiming to reduce the risk of a “property bubble” and subsequent crash.

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7. Investor Sentiment

This sentiment, essentially the collective attitude and outlook of investors towards property markets, can significantly influence both the demand for and the value of real estate.

Investors generally account for around one-third of all property transactions so positive investor sentiment can drive up property prices, especially in sought-after areas.

Conversely, negative investor sentiment, as occurred during the market downturn of 2022, can lead to a decrease in property values.

If investors believe that property prices will stagnate or fall, they may be less inclined to invest, or they might choose to sell off their properties, increasing supply in the market.

8. Government incentives

Government incentives can have both direct and indirect impacts on the real estate sector.

One of the most direct ways government incentives affect property values is through policies aimed at stimulating demand.

For instance, initiatives like the First Home Owner Grant (FHOG) or stamp duty concessions for first-time buyers directly increase buying capacity, leading to greater demand for property.

Another aspect is the development incentives provided by the government to promote specific types of property development, such as high-density housing or urban renewal projects.

These incentives can increase property values in targeted areas by improving infrastructure, accessibility, and community facilities, making them more desirable places to live.

Tax policies and regulations also play a crucial role.

Negative gearing can increase demand for investment properties, pushing up prices.

And every time there is talk about removing negative gearing or amending taxes including land tax, investors shy away from our housing markets.

Property Market

Australian housing market predictions for 2024

The last few years have shown us how hard it is to forecast property trends, and as always there will be headwinds and tailwinds buffeting our property markets.

Drivers of property price growth in 2024 will include:

  • Continued strong population growth at a time when we are not producing enough supply of new dwellings. This extreme shortfall will exert upward pressure on house prices and rents throughout 2024.
  • I anticipate that interest rates will fall in the second half of 2024 and at some stage next year it is likely APRA will relax its mortgage serviceability buffer. This is currently at 3% and the combination of these factors will increase borrowing capacity.
  • FOMO (fear of missing out) will creep in as buyers realise all the price falls of 2022 have now been made up and the media will keep mentioning new record prices being achieved.

Headwinds:

  • Stretched affordability will remain an issue in 2024, however, buyers will want to get on with their lives and therefore choose townhouses or apartments over homes or move to more affordable suburbs.
  • The RBA wants to lift unemployment to help slow inflation. Financial uncertainty and worries about job security will stop some buyers from making important decisions like buying a home or an investment property.
  • Poor consumer sentiment was a feature of 2023, holding back property buying decisions, and until there is more certainty about our economy and confidence that interest rates have peaked and inflation is under control, it’s likely that consumer confidence will remain low in the first half of 2024.

The following chart from ANZ Bank shows they expect housing prices to rise around 10% in 2023, 6% in 2024 and then around 5% in 2025.

Anz Research

The strongest performers are likely to be Brisbane and Perth, where population growth is expected to outpace supply more than in other cities.

ANZ believes that real wage growth from early 2024 and modest interest rate easing from late 2024 will also support borrowing capacity and prices.

8 economic and property trends to watch out for in 2024

1. The recovery phase of the market will continue in 2024

Property price growth will continue in 2024 albeit at a much lower rate and our housing markets will be fragmented as affordability will affect many homebuyers.

2. Inflation will peak

Interest rates will peak in early 2024, if they haven’t already done so, but are likely to remain higher for longer than many would like as inflation will remain stubbornly higher than the RBA hopes for a little longer.

When interest rates eventually fall this is likely to encourage greater housing investment and more homebuyers.

3. Our property market will be even more fragmented

Of course, there was really never one Sydney property market or one Melbourne property market.

There are markets within markets – there are houses, apartments, townhouses and villa units located in the outer suburbs, middle ring suburbs, inner suburbs and the CBD, and they’re all behaving differently.

But our markets will be much more fragmented moving forward as some demographics struggle with cost-of-living, rent and mortgage cost increases (at a time of low wage growth) more than others.

It will either stop them from getting into the property markets or severely restrict their borrowing capacity which will negatively impact the lower end of the property markets.

Meanwhile, many first-home buyers who borrowed to their full capacity will have difficulty keeping up with their mortgage payments at the time of rising interest rates or when their fixed-rate loans convert to variable rates.

In other words, there will be little impetus for capital growth at the lower end of the property market.

That’s why I would only invest in areas where the locals’ income is growing faster than the national average – such as gentrifying suburbs – as locals will have higher disposable incomes and be able to and are likely to be prepared to pay a premium to live in these locations.

Many of these locations are the inner and middle-ring suburbs of our capital cities which are gentrifying as these wealthier cohorts move in.

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4. Migration

Net overseas migration to Australia will remain strong in 2024, however, the Federal government will lower the rate of temporary migrants coming to Australia.

This will keep driving rental growth as migrants tend to rent.

Only 38% of migrants own a home after being in Australia for five years, yet 71% of migrants own their home after 10 years.

5. Rents will keep rising

There is no end in sight for our rental crisis and rent prices will continue skyrocketing into 2024.

In fact, increased rental demand at a time of very low vacancy rates will see rentals continue to rise throughout the next few years.

This table by SQM Research shows how strongly weekly rent asking prices have risen, a trend which, worryingly, we would likely continue to see while our government tries to work out a way to boost supply to match unprecedented demand.

Next update: 20 Dec 2023

6. Strategic investors will keep entering the property market

And they’ll squeeze out first-home buyers.

As rents continue to rise and the share of first-home buyers continues dropping, strategic investors with a realistic long-term focus will return to the market.

Neighbourhood

7. Neighbourhood will be more important than ever

In our new “Covid Normal” world, people will pay a premium for the ability to work, live and play within a 20-minute drive, bike ride or walk from home.

Many inner suburbs of Australia’s capital cities and parts of their middle suburbs already meet the 20-minute neighbourhood tests, but very few outer suburbs do because there is a lower developmental density, less diversity in its community, and less access to public transport.

And ‘neighbourhood’ is important for property investors too, and here’s why.

In short, it’s all to do with capital growth, and we all know capital growth is critical for investment success, or just to create more stored wealth in the value of your home.

This is key because we know that 80% of a property’s performance is dependent on the location and its neighbourhood – in fact, some locations have even outperformed others by 50-100% over the past decade.

And it’s likely that moving forward, thanks to the current environment, people will place an even greater emphasis on neighbourhood and inner and middle-ring suburbs where more affluent occupants and tenants will be living.

These ‘liveable’ neighbourhoods with close amenities are where capital growth will outperform.

What sets these neighbourhoods apart is the demographics – these locations are generally gentrifying or are lifestyle locations and destination locations that aspirational and affluent people want to live in.

So lifestyle and destination suburbs where there is a wide range of amenities within a 20-minute walk or drive are likely to outperform in the future, fetching premium prices in 2024.

8. Our economy and employment will remain robust

Sure the RBA continues in its efforts to slow down our spending a little in order to bring down inflation.

But despite this our economy will keep growing (albeit a little slower) and the unemployment rate will remain low thanks to the many new jobs created as our economy grows.

Capital Cities

Local Capital Cities Market Predictions for 2024

As we know, there is not one Australian housing market, but markets within those markets, and again within those.

To give a better view of market predictions for the next 12 months in your area, here’s a breakdown of each local capital city’s market predictions for 2024.

Melbourne housing values rocketed 15.8% through 2020 and 2021 before falling 7.9% from their peak in March 2022 through to the recent trough in January 2023.

But it is now clear that the Melbourne housing market has turned the corner with all research showing prices have clearly passed the bottom of a market downturn, following 10 month-on-month increases in median property prices.

At Metropole, we’re finding that on-the-ground sentiment has changed and strategic investors and homebuyers are accepting that inflation has probably peaked and that interest rates are likely to peak in the next few months, so they are getting on with property decisions.

While more buyers are active in the market, there is currently a shortage of good quality stock on the market – while house prices have been resilient, Melbourne rental rates are experiencing weaker conditions due to a higher supply of rental properties, and less demand.

Sydney’s housing values also boomed through 2020 and 2021 with prices rising by 27.2% before falling 12.4% from their peak in January 2022 to the recent trough in January 2023.

But now the Sydney housing market has also clearly turned the corner with prices rising consistently for the last 10 months – now up 11.6% since January 2023.

Over the last few months, the sentiment of both Sydney property buyers and sellers has changed and buyers are pushing up the price of well-located A-grade homes and “family-friendly” apartments which are still in short supply, but B-grade properties are taking longer to sell and informed buyers are avoiding C-grade properties.

This flight to quality means that moving forward the various sectors of the Sydney real estate market will be segmented, which is a more “normal” property market.

Sydney’s strong auction clearance trends are also a great “in time” indicator of market sentiment and a leading indicator of future property prices.

Brisbane

Brisbane’s housing market paints an even stronger picture – after prices rose a huge 45.3% in 2020-21, they fell 8.9% from their peak in May 2022 to the January 2023 trough before turning and rising 10.5% over 10 month-on-month increases.

And there are many signs that Brisbane will still be one of the strongest housing markets in 2024.

Home prices have surpassed previous peaks, and if prices continue to grow at the same pace as over the past 3 months, home prices in Brisbane would be set to end the year up 8.0%, which would be close to double the average annual growth since 2010 – with that growth expected to continue as we move into 2024.

Our on-the-ground experience at Metropole Brisbane shows that there is emerging strong demand from both home buyers and property investors for A-grade homes and investment-grade properties.

Perth’s housing values also continue to enjoy an accelerated increase, with October’s 1.6% rise in values the highest monthly gain since March 2021.

Since finding a trough in January, the National Home Value Index has increased by 7.6%, leaving the index only 0.5% below its historic high recorded in April of last year.

Perth’s listings are almost 45% below the five-year average, while sales activity is almost 25% above average and prices are rising at the fastest pace since March 2021 so it’s logical to expect prices to continue increasing into 2024 as the city continues to grapple with its supply and demand imbalance.

Adelaide’s housing values reached a new record midway through November, recovering from its 7.5% drop in values recorded through the trough from May 2022 to January 2023.

The trend in advertised stock levels remains a critical feature of the housing market.

Advertised stock levels have hardly budged through spring, holding almost 40% below the 5-year average for this time of the year, despite a 20% rise in the flow of new listings coming onto the market.

With vendor activity gathering some momentum, while buyer activity slows, it’s likely selling conditions may continue to rebalance back towards buyers in 2024.

Canberra’s property prices rose a robust 6.2% in November which is promising news for the city’s property market.

But new listings in the city have also surged 24.4% over the past year, the strongest uptick of any Australian city.

With vendor activity gathering some momentum, while buyer activity slows, it’s likely selling conditions will continue to rebalance back towards buyers, especially in those cities where advertised supply levels are high.

In markets where demand and advertised supply levels are more evenly balanced, it’s logical to expect price growth to slow down in 2024.

Hobart’s housing values remained flat for November – while prices were rising in other capital cities around the country, Hobart’s new listings and distressed listings remain high.

Like Canberra, Hobart’s vendor activity has gained momentum which has taken the pressure of undersupply out of the market and cooled property price growth – a trend which is likely to continue into 2024.

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Long-term forecasts for Australian property markets (2025-2030)

As I said before, if nothing else, the pandemic years have shown us that no matter how many times you forecast property prices, it will always be difficult to predict exactly where property markets and prices will be in three months’ time, let alone 6-7 years into the future.

After all, history shows us that some properties will outperform others by 50-100% in terms of capital growth, so strategic property investors who buy investment-grade properties could expect to see the value of their properties more than double within the next seven to 10 years.

So we always have to take forecasts for Australian property markets with a big pinch of salt.

But what I am confident we’ll see for our future property markets comes off the back of our strong projected population increase.

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